Crude Oil Gains Continue on Dollar Selloff

US crude has posted slight gains on Thursday, as March futures trade at $33.20 a barrel in the North American session. Brent crude futures are currently trading at $35.37 per barrel. In economic news, US Unemployment Claims disappointed, climbing to 285 thousand. Manufacturing numbers were a mix, as Preliminary Unit Labor Costs posted a strong gain of 4.5%, well above the forecast. However, US Factory Orders posted a decline of 2.9%, missing expectations.

The US dollar has sustained broad losses and crude oil prices have jumped on the dollar selloff bandwagon. The greenback weakened following soft numbers from the labor market and services sector. On Wednesday, ADP Nonfarm Payrolls, which precedes the official NFP report on Friday, dropped to 205 thousand in January, compared to 257 thousand a month earlier.  There was more bad news from ISM Non-Manufacturing PMI, a key gauge of the services sector. The index dipped to 53.2 points in January, its worst showing since March 2014. On Thursday, Unemployment Claims rose to 285 thousand, above the expectations of 279 thousand. Is the US economy in trouble? A robust labor market in the second half of 2015 helped convince the Federal Reserve to raise interest rates in December, but employment numbers have been lukewarm in early 2016. If employment and inflation numbers do not improve, it’s unlikely that the Fed will raise rates in March. In the heady days following the Fed’s historic rate hike, there was talk of up to four rate hikes in 2016, but this appears unlikely, given current economic conditions and the collapse of oil prices.

The huge oil glut is unlikely to improve anytime soon, as underscored by the most recent US Crude Oil Inventories report, which showed a surplus of 7.8 million, much higher than the estimate of 3.7 million. This was the second straight week that oil supplies were much higher than expected, and these readings will only increase worries that demand for oil products has weakened. The Chinese slowdown has pushed oil prices sharply lower, as the Asian giant is world’s second largest consumer of oil. Low oil prices continue to contribute to weak inflation levels around the world, and inflation in the US remains well short of the Federal Reserve’s target of 2.0%.

WTI/USD Fundamentals

Thursday (Feb. 4)

• 2:15 US FOMC Member Eric Rosengren Speaks
• 7:30 US Challenger Job Cuts. Actual 41.6%
• 8:30 US Unemployment Claims. Estimate 279K. Actual 285K
• 8:30 US Preliminary Nonfarm Productivity. Estimate -1.5%. Actual -3.0%
• 8:30 US Preliminary Unit Labor Costs. Estimate 3.9%. Actual 4.5%
• 10:00 US Factory Orders. Estimate -2.5%. Actual -2.9%
• 10:30 US Natural Gas Storage. Estimate -170B. Actual -152B

Friday (Feb. 5)

• 8:30 US Nonfarm Employment Change. Estimate 189K
• 8:30 US Average Hourly Earnings. Estimate 0.3%

*Key releases are highlighted in bold

*All release times are EST

WTI/USD for Thursday, February 4, 2016

WTI/USD February 4 at 11:00 EST

Open: 32.28 Low: 31.70 High: 33.59 Close: 33.20

WTI/USD Technical

• WTI/USD showed limited movement in the Asian and European sessions. The pair has been choppy in North American trade.
• There is resistance at 35.09
• 32.22 has switched to a support line

Further levels in both directions:

• Below: 32.22, 30.00, 26.64 and 22.88
• Above: 35.09, 37.75 and 39.87

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.